With private credit’s software exposure facing AI disruption risk, Tim Leary, Senior PM for Leveraged Finance, discusses how defaults are possible but public high yield bonds potentially offer safer positioning.
Key takeaways:
- Concentrated exposure meets constrained capital: private credit’s ~20% allocation to software – underwritten on forward-looking revenue assumptions rather than cashflow – faces a dangerous collision with technical market constraints.
- 2028 maturity wall threatens differentiated outcomes: approximately one-third of software names across private debt and leveraged loans could face restructuring over the next three years. This may create stark performance dispersion between companies with proprietary data advantages and vulnerable niche providers.
- Quality and liquidity trump yield: high yield bonds may offer safer risk-adjusted positioning versus private debt and leveraged loans, providing broader investor access, greater transparency, and lower CCC exposure, while the February sell-off created selective opportunities for investors.
